Wednesday, January 31, 2018

Several weeks ago word hit the cyber street that South Korean authorities were preparing to ban local crypto exchanges, similar to what China's government did. As South Korea has come to represent a large share of global crypto trading, this hammered the prices of several cryptos, chiefly Bitcoin.

The illegal foreign currency exchange part is a bit more tricky, but easy enough to explain. Basically, South Korea maintains tight controls on "capital outflows" from the country. Relatively small amounts sent overseas trigger reporting requirements (as the first article I've linked to above states, it's $3000 USD equivalent). What people were doing was buying cryptos locally in South Korean won (KRW) and sending it to a partner located somewhere overseas. This partner would then sell the cryptos for the local currency there and distribute the proceeds into local accounts on their behalf. Ordinarily, this kind of activity must be carried out by licensed FOREX entities in South Korea. Because this arrangement was not carried out in KRW, it skirted the foreign exchange licensing and reporting requirements.

The intervention of South Korea's Finance Ministry is thus understandable, and expected. Fortunately the assumption that they would follow China's lead and effectively ban large-scale cryptocurrency trading has proven false, as they appear to be limiting their enforcement actions to those things that are actually violations of South Korean law. So once again, rumor traveled faster than fact, and in such a tiny global market as cryptos, it had a huge effect on the price. This news is only a few hours old, so as word spreads about it, perhaps we'll see some favorable movement in the market cap of cryptos generally as a result.